Abstract
Drawing on two decades of extensive deal data from the venture capital market, we show that one in three deals involves an investor and founder from the same alma mater. Notably, venture capitalists (VCs) are not only more likely to invest in founders from their alma mater, but also place larger bets on these firms. Tests exploiting VC partner turnover suggest a causal link between education connections and funding likelihood. Crucially, using an instrumental variables strategy, we also find that startups on the margin, whose founders share an alma mater with a VC partner, have better post-funding outcomes. These positive effects of connections are stronger when information about founder abilities is less clear, and when connections between the VC and founder are stronger—such as when they attended the same university concurrently. We conclude our analysis by showing that, conditional on perceived school quality, minority freshmen are more likely to attend schools with higher rates of same alma mater matching, suggesting that these university connections likely alleviate financing frictions for minority entrepreneurs. Collectively, our findings suggests that university connections facilitate information flow on average, rather than merely channeling funding towards lower-quality startups.